The case between ACIT, Circle-52(1), New Delhi (appellant) and NS Software, New Delhi (respondent) pertains to the Assessment Year (AY) 2015-16. The case was filed on 13th June 2019 and concluded with a final order on 8th August 2022. The case was heard by the Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘E’.
During the scrutiny assessment proceedings for AY 2015-16, the Assessing Officer (AO) noticed that NS Software had debited Rs. 70,504,114 on account of interest paid to the bank against a secured loan of Rs. 60,20,05,378. The AO further observed that out of the total borrowed fund, the assessee firm had given advances to the partners of the firm amounting to Rs. 44,07,29,445 without charging any interest.
The appellant, ACIT, Circle-52(1), contended that the interest debited to the Profit & Loss account should be proportionately disallowed as the interest-bearing loan had been diverted to non-interest bearing advances. The AO proceeded to compute the proportionate disallowance and made an addition of Rs. 5,16,16,215.
The respondent, NS Software, argued that similar situations had arisen in previous assessment years (AY 2005-06 to AY 2011-12) where the assessments were completed after thorough scrutiny without any such disallowance. The assessee explained that the loan was borrowed for business purposes and no adverse findings were given in earlier assessment years. Additionally, the assessee pointed out that despite a specific clause in the partnership deed, no interest was being paid on the credit balance of capital amounting to Rs. 250.84 crores to its partners.
The Commissioner of Income Tax (Appeals) [CIT(A)] considered the facts and submissions presented by the assessee. The CIT(A) found that the loan was taken in AY 2007-08 and that the assessee had been paying interest since then, claiming the same as expenditure. The returns for AY 2007-08 to AY 2011-12 were selected for scrutiny assessment and no disallowances on account of interest claimed by the assessee were made. The CIT(A) deleted the disallowance made by the AO, and this decision was upheld by the Tribunal in ITA No. 5988/Del/2017 for AY 2012-13.
The Tribunal, comprising N.K. BILLAIYA (Accountant Member) and YOGESH KUMAR US (Judicial Member), reviewed the submissions and records. The Tribunal noted that the disallowance was made for the first time in AY 2012-13, which was deleted by the CIT(A) and upheld by the Tribunal. The Tribunal cited the Supreme Court case of Radhasoami Satsang vs. CIT 193 ITR 321, which held that if the facts are the same and the law has not changed, a consistent view must be taken as in earlier assessment years.
Applying the rule of consistency, the Tribunal did not find any error or infirmity in the findings of the CIT(A). Consequently, the Tribunal dismissed the appeal filed by the revenue.
The appeal by ACIT, Circle-52(1), New Delhi, against NS Software, New Delhi, was dismissed. The Tribunal upheld the decision of the CIT(A), deleting the disallowance made by the AO on account of interest paid amounting to Rs. 5,16,16,215.
Order pronounced in the open court on 8th August 2022.
Accountant Member: N.K. BILLAIYA
Judicial Member: YOGESH KUMAR US
Date of Order: 08/08/2022
Copy forwarded to:
Assistant Registrar, ITAT, New Delhi
Disallowance of Interest Expense: NS Software vs ACIT, Circle-52(1), AY 2015-16
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